In praise of ... James Tobin

Straight after winning the Nobel prize in 1981 for his work on portfolio theory (or why investors choose some assets over others), James Tobin was asked by reporters to explain his ideas - simply, please. The professor bravely gave it a go: "You know, don't put all your eggs in one basket." Sure enough, the next day's front pages read: "Economist wins Nobel for saying, 'don't put eggs in one basket'." Tobin's theories are more complex, of course. They are much more valuable too, although for a long time they have not had a great deal of support. By the time of the Yale professor's death in 2002, he was all set to go down as a great economist who lacked decent spear-carriers. Yet he has recently developed friends in high places. He is quoted by Ben Bernanke, head of the US central bank. His former research assistant, Austan Goolsbee, is now economics adviser to Barack Obama. And Tobin's ideas look increasingly relevant. In contrast to his great rival Milton Friedman, James Tobin argued that markets were not all-knowing and sometimes delivered duds. He also thought there was a place for - shock, horror - government intervention in the economy. Rather than abolish markets, he sought to mitigate their sometimes destructive influence. His best-known idea is the Tobin tax, a modest levy on financial transactions meant only to throw sand in the wheels of finance. Policymakers put an unhealthy premium on new ideas; the Tobin tax may be an old idea, but it is eminently sensible.